Henry Sliwinski v. Minister of National Revenue, [1993] 1 CTC 2729

Beaubier, T.C.C.J.:—This matter was heard at Toronto, Ontario, on March 8, 9, 10 and 12,1993 pursuant to the old procedure of this Court.

The appellant called as witnesses Barry Lebow, an appraiser; himself; Bohdan ("Bob") Dubniak; and Jack Walker, a lawyer. The Minister of National Revenue called James Pentu rn; Appathurai Eustace, an appraiser employed by the Minister of National Revenue; and David Johnston, an auditor employed by the Minister of National Revenue.

The main issue is whether the appellant was paid the sum of $318,442 as consideration for services rendered by the appellant to Norton Penturn or his related companies as part of the sale price of 17 Canadiana Drive, Thornhill, Ontario in 1984. In January, 1984 the appellant sold that property, which was his residence, to "James Penturn, in trust" for $550,000. A secondary issue is the fair market value of the residence at the time of sale. The appellant did not report any part of the sale price as his income in 1984. He was assessed for the 1984 year on the basis that the $318,442 was income to him. He was also assessed for penalties in relation to this sum. He appealed. The reply relied upon sections 3, 9, 12(1)(a), 68, and 163(2) of the Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

In particular, section 68 as it read respecting the year in question, is as follows:

68. Where an amount can reasonably be regarded as being in part the consideration for the disposition of any property of a taxpayer and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposition shall be deemed to be proceeds of disposition of that property irrespective of the form or legal effect of the contract or agreement; and the person to whom the property was disposed of shall be deemed to have acquired the property at the same part of that amount.

Henry Sliwinski is 46 years of age. He has been married to his wife Debbie for 20 years. Henry went to high school and studied some business courses. Commencing in 1963 Henry worked for a number of stock brokers in Toronto “boiler rooms” telephoning names and trying to sell stock. This continued until 1969 when he went into the optical courier business and at the same time commenced buying houses, fixing them up, painting them and selling them. He continued this until 1974 when he went to work for the Canadian Imperial Bank of Commerce. He remained there until 1978.

In September of 1978 Debbie Sliwinski formed the corporation Kamitek Inc. ("Kamitek"). She had 80 per cent of the shares, Bohdan Dubniak had 10 per cent of the shares, and another man had 10 per cent of the shares. Henry Sliwinski worked for Kamitek. Kamitek went into the management consulting and project management and analysis business.

In 1977 Henry purchased a house from the grandmother of Jack Walker, a lawyer in Toronto. The real estate broker was John Penturn & Son Ltd., a firm owned by Norton Penturn. John Penturn & Son Ltd. was established in 1906. Norton Penturn joined the firm in 1936. It operated a real estate brokerage and property management business. Norton's daughter was the real estate agent on the deal. Jack Walker was the lawyer for Norton Penturn and his various corporations.

Norton Penturn was born in 1915. His father John Penturn founded John Penturn & Son and Norton took the business over. During the period in question Norton Penturn was worth a few million dollars and had various business interests. In particular, Norton or his family owned 2545-2547 Bloor Street West Holdings Ltd., a corporation formed to develop a condominium project it took over in a partly completed state at that address in Toronto, Ontario, and in addition it owned 246057 Investments Ltd. which acquired a 25 per cent interest in London Loan Ltd. 246057 Investments Ltd. and 2545-2547 Bloor Street West Holdings Ltd. were amalgamated in September of 1983 to form the corporation PFH Investments Ltd. (hereinafter called PFH"). PFH is owned by a trust for the benefit of some or all of Norton's three children.

Henry testified that in late 1980 Jack Walker advised him that Norton Penturn had an interest in London Loan Ltd. and Henry was asked to review the assets of London Loan Ltd. The result of this retainer was that Kamitek assisted Norton in the purchase of the entire interest of London Loan Ltd., 50 per cent of which was owned by Canadian Commercial Bank and the residue of which was owned by others. Henry then assisted Norton in forming and obtaining the appropriate licences for a trust company called London Trust & Savings Company which was wholly owned by London Loan Ltd. London Trust & Savings Company was incorporated and licensed in 1982. Henry also became the manager of London Loan Ltd. as an employee of Kamitek which had an oral operating contract for the management of London Loan Ltd. Basically Norton Pentu rn had Henry at the helm of this operation and however Henry wanted to be paid was up to Henry, as James Penturn testified.

Henry also assisted in the completion and marketing of the condominium project at 2545 Bloor Street West, Toronto.

Jack Walker testified that Henry was a workaholic and that during 1981 and 1982 London Loan Ltd. was doing a very good business in letting out mortgages and in fact that mortgage business amounted to over 80 per cent of Jack Walker's practice at that time.

In 1981 Henry and Debbie purchased a home at 17 Canadiana Drive, Thornhill, Ontario for $300,000. Jack Walker closed the deal. Henry and Debbie put down $100,000 and Norton Penturn got them a $200,000 first mortgage on the home. They intended to have a family and it was a family home in a family area. The purchase closed in December of 1981 and Henry and Debbie immediately commenced renovating the home substantially.

A great portion of the renovations was done by contractors involved in the work at 2545 Bloor Street West.

James Penturn was the youngest of Norton's three children. He was the only one interested in getting into Norton's business. In 1981 James graduated with a Bachelor of Arts from the University of Toronto and Norton asked Henry to introduce James to the business. James and Henry agree that they became friends. There are a number of bases for this friendship. Henry and Debbie were from different religions and had married. James and his girlfriend Kathy were interested in getting married; they were of different religions and in particular James’ mother did not approve. Henry introduced James to a banker, took him to lunch, and involved him in the various projects that Henry was doing for Norton. It should be appreciated that Norton started James in the business when James was 16 and he had James work for him for some summers. In addition James worked for a brokerage firm one summer and another outside firm for another summer. James testified in Court for a considerable period of time. He is a sensible, astute and careful businessman.

At this time Henry and Debbie were trying unsuccessfully to have children; they had serious problems. They tried to adopt. Henry discussed these problems with James from time to time. Norton Penturn and his wife Edie had visited Henry's home for dinner on a number of occasions. Jack Walker visited the home. James and Kathy came by one Sunday afternoon and visited.

The president of London Loan Ltd. was Norton Penturn. James Penturn became the treasurer. The day to day management was conducted by Henry Sliwinski and Bohdan Dubniak was brought in to assist Henry. London Loan Ltd. had a number of staff.

Once the licence to operate London Trust & Savings Company had been obtained, it was the key to making money. London Loan Ltd. had a licence which enabled it to lend approximately ten times its subscribed capital. London Trust & Savings Company would be able to lend approximately 12 times its subscribed capital. The potential was great because London Loan Ltd. owned London Trust & Savings Company. At the same time as the London Trust & Savings Company licence was obtained, the regulatory authorities stated that nothing could be done to put it into operation until more capital was subscribed to London Loan Ltd. Norton Penturn's companies had injected approximately 2.3 million dollars in capital into London Loan Ltd. In about 1983 another 1.1 million dollar debenture was obtained from Canadian Imperial Bank of Commerce for London Loan Ltd. However, the regulatory authorities wanted more capital. London Loan Ltd. had issued substantial mortgages and by mid-1983 it had no more money to lend. It was reduced to collecting on its mortgages and realizing on various mortgages which were not being paid. Norton Penturn decided he was not going to put any more capital into the company.

Uncontested evidence was given that Norton Penturn was a cheap operator. He was very slow to pay. Norton revelled in law suits, and they were part of his daily business fare.

By 1983 James and Henry were beginning to go their separate ways in respect to the operation of London Loan Ltd. Henry was frustrated that Norton would not put in more capital. Norton decided to sell London Loan Ltd. and London Trust & Savings Company. In July of 1983 Henry had a heart attack. He states, and James and Bohdan generally agreed, that after the heart attack Henry's attitude changed. By this time 2545 Bloor Street West had been completed and the condominium units had been put up for sale. By the fall of 1983 it was apparent the condominium units could not be sold and an effort was made to rent them.

Henry testified that the combination of the heart attack plus the failure to have children resulted in the Sliwinski's deciding that they would sell 17 Canadiana Drive. Because James wanted to marry Kathy, Henry attempted to interest James in purchasing the house. Part of this effort was a note to James on October 5, 1983 (Exhibit A-2) valuing the improvements at $202,000, with an attached schedule of the renovations. In testimony Henry reduced the value of the renovations to $152,000. James stated that he never got Exhibit A-2.

After his heart attack Henry went into the office at London Loan Ltd. on a less intensive basis. Bohdan Dubniak and the remaining staff were now in place and administering its day to day affairs. Henry became active telephoning firms across the country in order to solicit bids on the sale of London Loan Ltd. and the accompanying registered trust company with its certificate.

On November 2, 1983 Henry went into hospital and received a by-pass operation. Henry testified that immediately after the operation Norton Pentu rn went into his hospital room to discuss business and was evicted from the room by Henry's doctors.

Kamitek had been billing Norton Penturn for its services from time to time. From January 1 to March 31, 1983 the bill was for $30,000 (Exhibit R-2). There were periodic billings. In addition Henry alleges that there were extra billings from time to time from Kamitek to Norton Penturn. This is denied by James Penturn. On November 4, 1983 James Penturn, signing for 2545-2547 Bloor Street West Holdings Ltd., wrote Kamitek Inc. to the attention of Bob Dubniak acknowledging receipt of the files pertaining to the rental units of this project. In the letter he referred to a final billing by Kamitek with respect to "services rendered based upon the unbilled part of your fee of $15,000 per annum, until termination by your firm of the account" (Exhibit R-3). On November 21, 1983 Bohdan Dubniak, for Kamitek Inc., forwarded a letter to Norton Penturn advising that a final accounting for Kamitek's services with respect to 2545 Bloor Street West would be rendered and would not be limited to services for that project rendered by B. Dubniak which were billed at regular intervals on the basis of $15,000 per annum (Exhibit R- 4).

Henry testified that by December 1, 1983 an offer to purchase London Loan Ltd. was received from the Principal Group of companies in western Canada. On December 5, 1983 Henry, signing for Kamitek Inc., wrote Norton Penturn concerning the offer of Principal Group Ltd. (Exhibit R-5). In the penultimate paragraph to that letter he wrote as follows:

Any participation on our part would obviously be subject to terms and conditons that were mutually agreeable to both ourselves and to the vendor(s) in the instant case. Accordingly, the meeting between you and I which has been scheduled for the week of December 12, 1983 will be an appropriate time to discuss the terms and conditions of any participation that may be requested of us.

James testified that he interpreted that as a threat by Henry to withdraw all his services and those of Kamitek Inc. from London Loan Ltd. unless he got a satisfactory remuneration in the event of the sale of London Loan Ltd. James testified that he understood that Norton Penturn visited Henry's home and made an offer for remuneration to Henry on account of the sale of London Loan Ltd. At this time the Penturns considered that Henry was indispensable to the operation and sale of London Loan Ltd. Basically the Penturn offer was based upon the purchaser assuming the Canadian Imperial Bank of Commerce debenture of $1,100,000, the Penturns being paid out their $2,300,000, some amount over that going to Henry to a ceiling, and then the residue being split between the Penturns and Henry. James did not know the amount to go to Henry, the ceiling, or the percentage of the split.

James testified that on the evening of December 21, 1983 Henry had a “Letter of Engagement" delivered to Norton Penturn's home which required an up-front payment to be made immediately to Henry in the amount of $500,000 and a further split of remuneration thereafter. Henry did not testify about this. No copy of this document was exhibited to the Court. James saw the document in question and described the folder it came in; he stated that the Penturns did not retain a copy of this document. It should be noted that in the past 12 months the Penturns have reduced the physical size of their operation substantially and files were destroyed. Before the reduction, the Penturns had between 50 and 60 filing cabinets of documents. James testified that because of the execution of Exhibit A-3 he felt that many of these earlier documents were not necessary.

Between the delivery of that document and the morning of December 22, 1983 Norton Penturn had a heart attack.

On December 25, 1983 the Sliwinskis flew to Florida. Henry stated that between December 25, 1983 and January 1, 1984 James Penturn phoned Henry in Florida in a fury concerning his father's heart attack and blamed Henry for the heart attack. James did not particularly remember this phone call.

While in Florida Henry telephoned Bohdan Dubniak. Bohdan Dubniak testified that he wrote a letter for Henry Sliwinski to James Penturn dated December 30, 1983, which he signed for Henry, the second paragraph of which reads as follows:

Be advised that my offer of the December 21, 1983, which was submitted to Norton Penturn, remains firm and continues to be subject to the provision therein which provides an irrevocable date for the acceptance of said offer. In the event the terms and conditions outlined therein are not met, my services will accordingly be withdrawn effective January 14, 1984 [Exhibit R-9].

On the same date Bohdan Dubniak wrote a second letter to James Penturn, which he signed for Kamitek Inc., the second paragraph of which reads as follows:

Further to our letter of engagement dated the 21st of December, 1983, be advised that if we have not received acknowledgment of our engagement in the above noted matter by January 13, 1984, then we shall withdraw our services effective as of that date [Exhibit R-10].

Henry testified that by January, 1984 there were six offers to purchase London Loan Ltd. Kamitek wanted what Henry described as a fair participation in the profit. James stated that once the Penturns decided to sell London Loan Ltd., they were prepared to strike a deal to give Henry or Kamitek a fair participation in the profit.

On January 12, 1984 Henry Sliwinski, Bohdan Dubniak, James Penturn and Jack Walker met at the Rendez-vous Restaurant in Toronto. Henry testified that the only discussion was how to sell London Loan Ltd. in everyone's interest. Henry wanted a fair share of the profit. James wanted the Penturn investment protected. Henry testified there was a discussion of the split of the proceeds above the Penturn investment. Henry testified there was no discussion about 17 Canadiana Drive at the Rendez-vous Restaurant meeting. Bohdan Dubniak agreed with Henry's version of that meeting. Bohdan testified he didn't know anything about the December 21, 1983 letter to Norton Penturn. Jack Walker testified that he assumed he was at that meeting and he has no recollection of the discussions there.

James Penturn's testimony about the January 12, 1984 meeting differs. James says that he went to that meeting at the Rendez-vous Restaurant with Jack Walker as his lawyer. He went there thinking that Henry wanted $500,000 up front, that he needed Henry in London Loan Ltd. in order to keep it going and complete the sale and that he had to work down from the $500,000. In his view things had to be settled on January 12th because Kamitek would withdraw its services by January 14, 1984. James states that at the Rendez-vous Restaurant he and Henry discussed the sale of 17 Canadiana Drive to James in trust and that the price would include the payment of Henry's up-front money. He states that he and Henry arrived at a price of $550,000 for 17 Canadiana Drive. James states that this agreement was part of the other agreement reached at the Rendezvous Restaurant on January 12, 1984. James states that he wanted the settlement badly because of his father's health and because they had to sell London Loan Ltd.

Thereafter James states that he drew the "AGREMEN", an agreement respecting the sale of London Loan Ltd. between Henry A. Sliwinski, Kamitek Inc., Norton Penturn and PFH which is dated January 13, 1984 and is filed as Exhibit A-3. James states that the "Agremen" filed as Exhibit A-3, the offer to purchase for 17 Canadiana Drive filed as Exhibit A-6, and the transfer of 17 Canadiana Drive filed as Exhibit A-7 were all signed at Jack Walker's office on the same day. The offer to purchase is undated. The transfer has a typed date of January 17, 1984; however all of the affidavits attached to it were executed on January 18, 1984. The “Agremen” does not refer to the offer to purchase and the offer to purchase does not refer to the "Agremen".

In particular, James states that Henry would not sign the "Agremen" until James had signed the offer to purchase and the deal on account of 17 Canadiana Drive was struck.

Jack Walker did not draft the "Agremen" filed as Exhibit A-3. James Penturn did, with some assistance from Jack Walker. In particular, paragraph 10 of the "Agremen", which is the heading of the agreement, reads as follows:

10. Save and except as provided herein the parties mutually agree that no indebtedness or obligations exist for services heretofore provided by Henry A. Sliwinski and/or Kamitek Inc., to Norton Penturn, PFH Investments Ltd., London Loan Ltd., London Trust & Savings Corporation and John Penturn & Son Ltd.

Henry and Bohdan are of the view that this does not waive any indebtedness owed to Kamitek or to Henry by Norton Penturn, PFH Investments Ltd., or John Penturn & Son Ltd. They agree that it does waive any indebtedness owed to Henry or Kamitek by London Loan Ltd. and by London Trust & Savings Corporation.

The'"Agremen" reduces Kamitek Inc.'s fee to $4,000 per month. It provides that if there is no proposal and no expectation of a proposal by April 30, 1984 then any party to the agreement can terminate it. It provides that PFH will receive $2,300,000 as a first charge on any sale price (excluding the $1,100,000 debenture) and divides the excess proceeds equally between PFH and Kamitek Inc. It also provides for a management committee of Henry Sliwinski, James Penturn, “Bob” Dubniak and Jack A. Walker, Q.C. The “Agremen” was signed by Henry A. Sliwinski, Bohdan Dubniak for Kamitek Inc., James A. Penturn for Norton Penturn, and Jack Walker for PFH.

Henry states the offer to purchase 17 Canadiana Drive was signed on January 13, 1984, the day after the Rendez-vous Restaurant meeting. He states that Jack Walker came to their home on the evening of the 13th of January with the offer to purchase for $550,000. Henry went into another room with his wife and they felt the offer was a chance of a lifetime and they signed it then and there in the same form the offer was presented. In particular, Henry states that he and James had not discussed the sale of 17 Canadiana Drive since Henry's letter to James of October 5, 1983.

Henry states that both the transfer (Exhibit A-7) and the "Agremen" (Exhibit A-3) were signed at Jack Walker's office and Jack Walker gave Henry the cheque for the purchase price. Henry never received a reporting letter from Jack Walker. Jack Walker's only reporting letter was sent to James Penturn. Bohdan Dubniak testified under oath that he did not received any of the proceeds of the sale of 17 Canadiana Drive.

Exhibit A-6, the undated offer to purchase which Henry states was signed at his home on the night of January 13, 1984, contains the following detail about the interior of the house:

. . .broadloom where laid, stove, fridge, b/f dishwasher, washer, dryer, drapes, blinds, S & S, E.L.F., air cleaner, humidifier, control air cond., gas B.B.Q., auto garage door opener, pool, pool equipment, smoke detector, pot lights and gar- burator.

Schedule A to this offer to purchase reads as follows:

The parties hereto agree as follows:

1. The purchaser shall assume and pay all outstanding interest on the existing first mortgage up to the date of closing and receive no credit on the statement of adjustments.

2. The vendor shall have the right to remain on the premises until September 1, 1984 at no rent, provided that all costs and expenses related to the upkeep of the real property, including municipal taxes shall be borne by the vendor. During such time, the vendor covenants and agrees that he will maintain the real property in its present manner.

The offer to purchase itself is in favour of "James Penturn, in trust”.

Exhibit A-7, the transfer of 17 Canadiana Drive, is a transfer to “ James Penturn, Esquire, of the City of Toronto in the Municipality of Metropolitan Toronto, in trust". James Penturn swore the affidavit of residence and of value of the consideration before Jack Walker on January 18, 1984. Paragraph 4 of that affidavit states as follows:

4. THE TOTAL CONSIDERATION FOR THIS TRANSACTION IS ALLOCATED AS FOLLOWS:

(a) Moneys paid or to be paid in cash	$350,000
(b) Mortgages (i) Assumed (show principal and	$200,000
interest to be credited against purchase price)
(ii) Given back to vendor	$NIL
(c) Property transferred in exchange (detail below)	$NIL
(d) Securities transferred to the value of (detail	$NIL
below)
(e) Liens, legacies, annuities and maintenance	$NIL
charges to which transfer is subject
(f) Other valuable consideration subject to land	$NIL
transfer tax (detail below)
(g) VALUE OF LAND, BUILDING, FIXTURES, AND	$550,000	$550,000
GOODWILL SUBJECT TO LAND TRANSFER TAX
(total of (a) to (f)
(h) VALUE OF ALL CHATTELS — Items of tangible		$NIL
personal property (retail sales tax is payable on the
value of all chattels unless exempt under the provi-
sions of the" Retail Sales Tax Act", R.S.O. 1980,
c. 454, as amended)
(i) Other consideration for transaction not included		$NIL
in (g) or (h) above
(j) TOTAL CONSIDERATION		$550,000

In particular, Jack Walker was examined carefully respecting subparagraph (i) “Other consideration for transaction not included in (g) or (h) above . . . $ NIL". Jack Walker stated that in swearing such an affidavit any outside consideration would be detailed in the affidavit attached to the transfer in subparagraph (i). He was emphatic that that is and was his practice. Such "other consideration” would be deducted from the number itemized in (g). Bob Dubniak, Henry A. Sliwinski, and Debbie Sliwinski also signed affidavits contained in the transfer before Jack Walker on January 18, 1984.

Subsequently, discussions continued with Principal Group concerning the possible sale of London Loan Ltd. James testified that as of 1993 and based on his business experience at that date he now understands that the mortgage portfolio of London Loan Ltd. was such that the possibilities of sale were not good and, to use his expression, even Henry's "smoke and mirrors” could not carry it through. However at that time the Penturns believed that with Henry on their side, the sale could be done.

On February 1, 1984 Jack Walker reported to James Penturn on the completion of the sale of 17 Canadiana Drive to James Penturn in trust (Exhibit A-8).

In April of 1984 Kamitek gave notice to Norton Penturn that it would terminate the relationship on April 30, 1984 and on that date the relationship terminated. Bohdan Dubniak testified that in July of 1984 Kamitek learned that London Loan Ltd. would not be sold to the Principal Group of companies. On July 12, 1984 Kamitek submitted an account to Norton Pentum for $80,500 over the signature of Henry Sliwinski (Exhibit A-4).

On August 7, 1984 Henry Sliwinski wrote "James R. Penturn, Trustee" a letter (Exhibit R-16) which requested that he be allowed to live at 17 Canadiana Drive after September 1,1984 because his new residence was not ready. On the same date, James Penturn replied to Henry with a rental proposition that Henry did not accept. By September 1, 1984 Henry had moved out of the premises. On September 1, 1984 James listed the property.

On September 14, 1984 Kamitek Inc., over the signature of Bohdan Dubniak billed Norton Penturn for a total of $155,200; this included the sum of $80,500 already billed on July 12, 1984 (Exhibit A-9). On October 16, 1984 this was rebilled. On October 26, 1984, Norton Penturn's solicitor, to whom he was referred by Jack Walker, wrote Kamitek Inc. and advised Kamitek Inc. that the agreement of purchase and sale and the "Agremen" were entered into to terminate all liabilities to Henry Sliwinski and/or Kamitek Inc. and that the $550,000 purchase price was paid to settle any outstanding claim by Kamitek Inc. or Mr. Sliwinski. He also advised that if Kamitek Inc. was repudiating that agreement, they would commence action for repayment of the $550,000 and the mortgage arrears on the $200,000 first mortgage and, in addition, the arrears of taxes and insurance (Exhibit A-10). This letter was sent to the attention of Mr. Dubniak with a copy to London Loan Ltd., attention Mr. N. Penturn and a copy to Jack Walker. On November 5, 1984 Bohdan Dubniak, for Kamitek Inc., wrote another letter to Norton Penturn stating that the account remained outstanding (Exhibit A-11). A further reminder was sent on December 3, 1984 (Exhibit A-12). On December 6, 1984 Norton Penturn wrote Bohdan Dubniak and denied liability (Exhibit A-13). Nothing further happened in respect to this account until Kamitek Inc. sued Norton Penturn by statement of claim issued September 13, 1990, on the instructions of Bohdan Dubniak. Norton did not counterclaim or sue for the $550,000 on the mortgage arrears, taxes and insurance as he stated he would in Exhibit A-10.

PFH's fiscal year end was September 30, 1984. At that time James Penturn was in charge of the corporate affairs. The income tax return filed for that fiscal year showed 17 Canadiana Drive entering inventory at $550,000. On September 30, 1984 it was shown to have a fair market value of $300,000. PFH showed an expense for consulting fees of $318,442. After inquiries from the auditor, that expense was not allowed. An objection was filed and a nil reassessment ensued which did not relate to the expense of $318,442 claimed. The auditor did not know if a" notice of loss determination” was filed by PFH.

The Minister of National Revenue's final financial analysis of the transaction as to the purchase of 17 Canadiana Drive indicates that PFH, for whom James Penturn states he held the property in trust, paid as follows:

The result is that the allocation of consideration determined by the Minister of National Revenue was as follows:

In paragraph 4 of the reply to notice of appeal filed by the Minister of National Revenue in this matter, subparagraphs (i), (j), (k), (0), (p), (s) and (t) read as follows:

(i) the appellant entered into an agreement of purchase and sale of the residence at 17 Canadiana Drive with James Penturn, in trust, which was dated as “ January 1984” and which provided for a closing date of on or before January 21st, 1984;

(j) the said agreement showed a purchase price of $550,000, payable by the purchaser by assumption of an existing mortgage in the amount of $200,000 and the balance by certified cheque;

(k) the parties to the said agreement also entered into an agreement, described as “Schedule A" to the agreement of purchase and sale, which provided that the purchaser would assume and pay all outstanding interest on the existing first mortgage up to the date of closing and further, that the vendor could remain on the premises until September 1, 1984 at no rent;

(o) $318,442 of the consideration received by the appellant were fees for services rendered or to be rendered by the appellant to Norton Penturn or his related corporations;

(p) the said $318,442 was income from the appellant's business in his 1984 taxation year;

(s) the appellant either knowingly, or under circumstances amounting to gross negligence failed to include the fees of $318,442 in reporting his income in the 1984 taxation year;

(t) as a result of thereby understating income for the 1984 taxation year, the tax payable if taxable income were computed by adding to taxable income reported the income of $318,442 exceeded tax payable on the basis of information provided in the return by $106,639.33.

In essence, the assessment by the Minister of National Revenue has implicit in it an allegation that at the meeting described by James Penturn which occurred at the Rendez-vous Restaurant on January 12, 1984, James and Henry and possibly Bohdan and Jack Walker conspired to commit a fraud upon the Minister of National Revenue. In view of the serious conflict of evidence between Henry and James this has important aspects to it. An allegation of fraud in a normal statement of claim between two citizens requires the person suing and alleging fraud to comply with what has usually been called a“ strict burden of proof". On the other hand, in a normal income tax case, the appellant bears the responsibility to disprove the assumptions of the Minister of National Revenue.

In Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164, 131 D.L.R. (3d) 559 at page 170 S.C.R., Chief Justice Laskin referred to Lord Justice Denning in Bater v. Bater, [1950] 2 All E.R. 458 at page 459 where he said this:

So also in civil cases. The case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require a higher degree of probability than that which it would require if considering whether negligence were established. It does not adopt so high a degree as a criminal court, even when it is considering a charge of a criminal nature, but still it does require a degree of probability which is commensurate with the occasion.

The evidence, including the documentary evidence filed, the documents alleged to have been sent and not received, and the document or documents dated December 21, 1983 which are agreed to have existed, and including the testimony, is such that the essence of determining the result in this case comes down to whether one believes Henry or James. The Court had the opportunity to view each of them in examination-in-chief and cross-examination for a period of hours on the stand.

Henry Sliwinski is a very emotional man. He is given to outbursts over which, at times, he has no control. On two occasions he almost burst into tears. One of those occasions related to the fact that he and Debbie could not have children.

James Penturn is quite a different witness than Henry. He is an extremely self-controlled witness. His answers to questions are exact. He asked for a repetition of certain questions and answered those exactly. There were a number of times when he did not want to answer questions and he avoided answering the question as long as possible by giving a carefully phrased answer to the question asked so that counsel was required to further refine the question more than once in order to obtain an answer that the counsel obviously knew in advance. James has been engaged in litigation with one brother and has been engaged in a hearing before the Ontario Securities Commission. He is without question an astute businessman, an astute witness, and careful and astute in his own life. He did marry Kathy. He was not sworn in, rather he affirmed, which would indicate that his religious leanings of the 1984 era have been abandoned and he has adopted a different mode of life than he had at that time. James' present home in Toronto is owned by a solicitor in trust for the benefit of his wife Kathy. The home itself is in an older area of Toronto south of the 401 highway, east of Yonge Street, and north of College; so far as evidence was led, it would appear that it is not in a newer area such as the Thornhill area that is in question in this law suit.

Henry's position is that he sold 17 Canadiana Drive to a young man and woman who were anxious to buy a house and were willing to pay a price that may have been beyond the market value at that time. Although the Court finds that James is a very cool and calculating fellow, he may not have been at the instant of the purchase of 17 Canadiana Drive.

After the purchase, once the Principal Group offer and the other offers for London Loan Ltd. fell through, it is quite possible, having regard to the obvious astuteness of James, that James could have arranged to report the sale in the manner he did, since first purchasing it "in trust”. The method by which PFH reported the transaction is such that it was bound to come to the attention of Revenue Canada in the income tax return filed for 1984. PFH took 17 Canadiana Drive into inventory at a value of $550,000. At the end of its fiscal year it showed the house in inventory at a value of $300,000. The difference was deducted as a business consulting expense. The 1984 income tax return of PFH had to be filed six months after September 30, 1984, by which time James would have been able to determine the fact that London Loan Ltd. was not going to be sold andthat he had paid too much for Henry's house. The Court put this general proposition to the Crown in the course of argument. The Crown discounted this possibility as too elaborate for James. The Court is of the view that such a proposition is not too elaborate for James and was not too elaborate for James by the time September 30, 1984 had come to pass. Certainly, it was not too elaborate for Norton to determine in 1984.

Not only is the oral evidence of Henry and James in conflict, the written evidence is also in conflict. James'"affidavit of residence and of value of the consideration” in the transfer makes no reference to any consideration outside of the ordinary house transaction. This is the affidavit of James sworn on January 18, 1984, at the time of the transaction in question. James and Jack Walker could have put anything in that affidavit simply because no part of it had to be signed by Henry or Debbie and none of it need ever have been seen by Henry or Debbie.

On Tuesday, March 9, 1993, at the end of the afternoon, and during the course of cross-examination of James Penturn, he was instructed by the Court to return either at 9:30 the next morning or at 2:00 the next afternoon with the 1984 and 1985 income tax returns for PFH, together with the working papers and another document. These instructions were issued because his motivation in testimony was brought into issue in cross-examination. At 2:00 p.m. on Wednesday, March 10, 1993, James Penturn appeared in Court. He did not have the 1984 and 1985 income tax returns. He stated that his understanding was that they were not required. This was self-serving and incorrect. It is the Court's view that this reflects the nature of James’ testimony before this Court. Where ames Penturn's testimony conflicts with that of Henry Sliwinski, the Court accepts Henry Sliwinski's.

In Pallan v. M.N.R., [1990] 1 C.T.C. 2257, 90 D.T.C. 1102, Associate Chief Judge Christie of this Court stated at page 2264 (D.T.C. 1107) as follows:

To my mind where, as here, appellants seek to challenge reassessments of their liability to tax by, in effect, repudiating what they and others have said in an agreement reduced to writing and things done in consequence of that agreement that are evidenced by documents such as the resolutions whereby Holdings and the amalgamated company each offered to purchase its shares from its shareholders; the acceptance of those offers in writing by the appellants; the issuance of promissory notes regarding the shares bought and sold and the assignments of debts arising out of those transactions, they must adduce evidence establishing a high degree of probability that their attacks on the reassessments are valid.

James Penturn is not the appellant in the case before the Court. However he is the witness propounding the Minister's allegations. There is an onus on the Minister of National Revenue in the circumstances of this case which exceeds the ordinary onus thrust upon him in an income tax case and which arises from the nature of the facts assumed by the Minister of National Revenue in this case and testified to by James Penturn.

The entire case put forth by the Minister of National Revenue is dependent upon James Penturn's testimony and the evidence submitted by him in exhibits. Moreover that case is based upon allegations of fraud or intimations of fraud and James’ testimony conflicts with the affidavit executed by him on January 18, 1984, in the transfer. That affidavit refers to the exact subject matter of this case, namely the consideration paid for 17 Canadian Drive by James Penturn.

Given the affidavit sworn by James Penturn on January 18, 1984, and the doubt which the Court has expressed over James Penturn's testimony, the Court does not accept the conflicting testimony of James Penturn in 1993 to the effect that he or he as trustee for PFH paid Henry Sliwinski a consideration for anything other than the property at 17 Canadiana Drive in the sum of $550,000 and the other funds that were paid on account of the purchase of that property.

The result is that no part of the payment by James of $550,000 can reasonably be regarded as being consideration for something other than the purchase of 17 Canadiana Drive from the appellant.

In view of the foregoing finding, it is not necessary to deal with the secondary issue raised by the parties in this matter, namely, the fair market value of the residence at 17 Canadiana Drive at the time of sale.

The appeal is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment accordingly.

The appellant shall have his costs.

Appeal allowed.